Investors large and small have lined up to exit UBS’s Trumbull Property Trust, PERE has learned, causing a two-year delay for capital redemptions.

The Swiss investment bank’s roughly $21 billion fund has seen a steady stream of divestment requests since 2017, according to five sources familiar with the fund and several investor meeting documents. The exodus stems from a combination of lackluster performance and a surge of new competition.

At the end of the first quarter, the redemption queue for Trumbull totaled $2.1 billion, according to a consultant who requested anonymity to discuss the fund. The other 24 managers in the NCREIF NFI-ODCE fund index combined for $1.7 billion in redemption requests; JP Morgan’s Strategic Property Fund had the next highest total at $720 million.

“It seems like every time [UBS] pays down $500 million of it, they get another $500 million request,” the consultant said of the bank’s redemption queue. “It clearly seems to be an ongoing issue with them internally.”

For its open-end vehicles, UBS typically accepts and distributes capital quarterly with a 60-day notice period, a spokesperson for the firm told PERE. However, when the volume of withdrawals goes beyond the fund’s capacity for a given quarter, there is a set process for rolling over requests, which is when the queue is formed. The bank declined to comment on the current redemption backlog.

As of December 2017, UBS Trumbull had underperformed relative to the ODCE index for 22 consecutive quarters, according to a report compiled by the consulting firm Callan for the Chicago Teachers’ Pension Fund. While many of its contemporaries produced five-year returns of 10 percent or better, UBS hovered closer to 8 percent. As a result, CTPF opted to fully liquidate its $154 million commitment in May 2018 with the hope of redeploying the capital into three other core vehicles: $60 million to LaSalle Investment Management’s LaSalle Property Fund, $85 million to PGIM’s PRISA II and $55 million to Clarion Partners’ Clarion Lion Industrial Trust.

The backlog to exit the fund is not exclusive to large investors. One endowment that committed only a few million dollars to Trumbull is stuck in the same two-year queue. While such delays from open-end funds are not typical in the current market, investors should be prepared for them, according to Christy Fields, managing principal of Massachusetts-based consultant Meketa Investment Group.

“Investors should not expect liquidity from this part of their portfolio even though the structure provides for some liquidity mechanisms,” Fields told PERE. “Hopefully it’s not disruptive, since this is part of the broader private markets bucket that plans do not rely on for cash needs or other objectives. That said, two years is a long time and that wait could be problematic for some.”

For all its internal struggles, UBS has faced significant pressure from the outside, too. Launched in 1978, Trumbull is among the longest running funds in the ODCE space. UBS has long been committed to keeping funds’ leverage low, PERE understands, an attribute that positioned it well heading into the global financial crisis. However, much of the market has followed its lead since then and tamped down the use of debt, erasing that point of distinction for UBS. Also, the market for open-end funds has nearly doubled during the past decade, from 30 vehicles in 2010 to 55 now with three more set to hit the market in the coming months, according to data tracked by StepStone Real Estate, a California-based manager and consultant.

Andrew Mitro, a principal at StepStone, told PERE his firm advises institutions to diversify their core portfolio and build deliberate strategies through niche funds rather than rely on broad-spectrum mega managers alone. This thesis has not caused investors to flee ODCE funds altogether, he said, though many have made partial divestments and reallocated.

“Given the opportunities in the market, we think it’s more accretive for investors to create their own overweights in their portfolios via their investment activity rather than trying to pick the fund that is overweight in the property type they like best,” Mitro said. “We’ve seen much more of a rebalancing than a massive run on the banks, so to speak, in terms of redemptions.”

A market-wide reshuffling has forced many managers to deal with redemption requests, though most are able to make these refunds within one quarter, thanks in part to healthy commitment queues. Even JPMorgan has been able to clear its cache on withdrawal requests for its $42 billion Strategic Property Fund – the sector’s biggest fund – every quarter.

Despite its hardships, UBS has taken a savvy approach to its Trumbull fund, industry sources say. Senior portfolio manager Paul Canning was put in charge of the portfolio in early 2018 and, aside from the $845 million sale of the Exchange Place office tower in Boston later that year, the firm has held on to most of its essential assets, avoiding a fire sale to satisfy redemptions.

Matt Ritter, a research consultant for the Boston-based consultant NEPC, said it is crucial for funds to hang on to key assets when they are hit with a wave of redemption calls to maintain the confidence of remaining investors. “For investors that are in these funds and staying in them, I would start to get concerned if managers have to sell off a meaningful portion of the assets,” Ritter told PERE. “The question becomes what assets are they going to sell? Why are they selling those assets? And, what does that mean for me as far as what’s going to be left in the portfolio? I don’t think we’re at that point yet, but down the road, those are the things we want to look at.”